Response to EEOC’s Background Check Concerns About Credit Reports

Nick Fishman

Yesterday, we posted the AP story which detailed the EEOC’s concerns about employment background checks.  And, we listed three topics that we would dissect in further detail.  Today, I wanted to focus on credit reports.

  • Are organizations misusing credit reports to make hiring decisions?
  • Are organizations misusing criminal background checks to make hiring decisions?
  • Where do we agree/disagree with the EEOC?

I would tend to agree that a company should not indiscriminately run credit reports on all candidates unless required to do so by regulation or necessitated by job responsibility.  And when you analyze the statistics from SHRM’s Background Checking Survey (on Credit Reports), businesses in general seem to support that statement.

They found that only 13% of all organizations were running credit reports on all candidates, 47% were checking credit on select candidates and the remainder of respondents were not using them at all.  Of those that review credit reports on select workers, 91% do so because the candidate would have fiduciary and financial responsibilities.  46% do so because the person was an executive level candidate.

EmployeeScreenIQ’s Screening Trends survey found that only 1/3rd of respondents thought credit checks were a high priority in the hiring process.  15% said they evaluated credit on all candidates, 45% said they did so on select candidates and 39% said they never reviewed credit when making a hiring decision.

I understand that this is becoming a hot button issue, but I think our state and federal governments and agencies need to take a step back and analyze this information before abolishing the practice.  The states of Hawaii, Oregon, Washington and Illinois  have already passed legislation aimed at curbing the use of employment credit reports, with around 19 other states with proposed legislation.  There is a  federal effort to do the same and of course, the EEOC would be only so happy to see this measure pass.  It’s important to note that there are a number existing laws that provide protection for job candidates against those that would misuse employment credit reports.

Much of this is a populist response to our current economic climate.  After all, people are struggling.  However, another important finding from the SHRM study is that employers aren’t just reviewing the last couple of years worth of credit history but rather looking at the entire report as a “body of work”.  Most employers understand that finding someone with perfect credit is near impossible, even in good times.  Today, if companies waited around for candidates with perfect credit, they wouldn’t be able to hire anyone.  They also know that unless regulated, that bad credit alone will not disqualify someone from employment.  Further, when derogatory information is found, a great majority are asking for an explanation before taking action.

It is important to consider that most companies are using this tool to gauge personal responsibility.  If a person has a history of mishandling their own finances, are they fit to manage the finances of their employer?  Can they be trusted with personal information on a company’s customers?

California governor Arnold Schwarzenegger has twice vetoed a state bill aimed to ban employment credit reports.  His rationale the second time around was as follows:

“I am returning Assembly Bill 943 without my signature. This bill would prohibit the use of consumer credit reports for employment purposes unless the information is either substantially job related, as defined, or required by law to be disclosed to or obtained by the user of the report.

This bill is similar to legislation I vetoed last year on the basis that California’s employers and businesses have inherent needs to obtain information about applicants for employment and existing law already provides protections for employees from improper use of credit reports.

As with last year’s bill, this measure would also significantly increase the exposure for potential litigation over the use of credit checks. For these reasons, I am unable to sign this bill.”

So, I have no problem with the EEOC (and the states) going after those that abuse the use of employment credit reports. But don’t let a small number of isolated incidents ruin everyone else’s ability to protect themselves, their employees and their customers.

Nick Fishman
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Nick Fishman

Nick Fishman is the co-founder of EmployeeScreenIQ, a leading, global employment background screening provider, and serves as the company’s executive vice president and chief marketing officer. He pioneered the creation of EmployeeScreen University, the #1 educational resource on employment background checks for human resources, security and risk management professionals. A recognized industry expert, Nick is a frequent author, presenter and contributor to the news media. Nick is also a licensed private investigator in the states of Ohio and Texas.
Nick Fishman
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  • I agree with you Nick. There will always be folks who abuse any system and we need to be careful not to overeact and end up making careless hiring decisions. On the other hand, anyone who misuses the background check should be penalized.

  • Nick Fishman

    Thanks for your your response Bernie. I hate to use a cliche, but then again, I can’t resist. “Don’t throw the baby out with the bath water” seems to apply here.